About Brookdale Senior Living
When I was in high school, one of my elective courses was choir.
And sometimes, we would take trips to local retirement homes and sing to folks during the holiday season, and it was honestly a lot of fun, as many of the seniors residing in these facilities were simply ecstatic to see and meet some new, friendly faces, and while I mainly went because I would be able to miss a few other classes during the day and eat lunch out with my peers while riding in a rickety, freezing school bus, seeing the looks on these folks faces and having the pleasure of interacting with them and hearing their “back in my day” stories was nothing short of a wonderful, heartwarming experience.
However, I still firmly hold the perspective that retirement homes in themselves are quite depressing.
Seriously, it seems like the worst form of daycare.
You can show me as many videos of older folks smiling, quilting and looking happy with some bouncy background music, but I am still just stuck with unequivocal sad thoughts when I think of dropping off our older members of society at some “resort” (come on now, get real) where they are largely detached from their family members and living the last years of their lives in the presence of unfamiliar nurses and caregivers and rooms filled with other strangers.
While I will fully acknowledge that not all retirement community settings are all that miserable, something about practically being estranged from your own family in some of your last years of life is so sad to think about.
Regardless of how or what I feel, however, Brookdale Senior Living is in the exact business of housing and taking care of (hopefully) older folks across the United States (along with its more specialty business segments of memory care and specific nursing categories and other related services as well), given their rather expansive real estate portfolio with reportedly well over 600 senior living communities across the United States (according to the description found on TD Ameritrade’s platform), with a handful of Brookdale properties in my neck of the woods (Austin, Texas) as well.
Regarding how Brentwood, Tennessee-based Brookdale Senior Living generates its revenues, like pretty much any other company, it charges customers for its services, and the company’s customers largely consist of the older folks that are being housed within their communities and/or their younger family members, which pay for their elders’ housing and other associated living arrangements, for instance, if the older family member needs to see a doctor once a week, Brookdale provides this supplemental transportation service and gets said older individual to their appointment weekly, and is certainly compensated for this supplemental service, in addition to paying for their stay at the Brookdale community in which they primarily reside.
Money for services.
Hey, we get it, even a company such as Brookdale needs to generate some revenues in order to merely keep its doors open and provide some form of comfortable (again, hopefully) housing for their ever so special guests and it isn’t exactly hopes and dreams that keep the lights on at these facilities.
In addition to selling rooms and other services to its guests, the company might also generate some revenue through the development and commercialization of its properties, as, to a large extent, Brookdale itself can be reasonably thought of as a real estate company that just so happens to house those within the older generations, as we have seen a sort of similar classification across other industries with other companies in recent history.
At any rate, this was a brief overview of Brookdale Senior Living and let’s let the number speak for themselves now.
Brookdale’s stock financials
With a prevailing market capitalization of $982.6 million, a corresponding share price of $5.22 along with no annually distributed dividend offered to its shareholder base and no readily available price-to-earnings (P/E) ratio, which is frankly somewhat puzzling to us as this company has been around for quite some time (founded in 1978) and likely generates a good deal of income and revenue through the rent payments it receives, yet it seemingly isn’t able or perhaps doesn’t want to (for whatever reason) issue a steady stream of dividend income to its shareholders nor does it apparently have any earnings to report, which is further supported by the fact that the company’s earnings per share (EPS) is listed as -0.56, on a trailing twelve month, GAAP basis, according to TD Ameritrade’s platform.
Puzzled, we are, as this initially implies that this company is lacking on some front(s), as, again, we would expect a company as large and well established as this one to be profitable, especially given the cash flow generative nature of its business.
Let’s continue investigating.
As it relates to the company’s balance sheet, Brookdale’s executives are in charge of tending to and responsibly deploying around $5.9 billion in terms of total assets as well as just about $5.3 billion in terms of total liabilities, which, all things considered from our vantage point, isn’t horribly worrisome since this company happens to own a lot of real estate across the country, and as long as the company progressively pays down its properties and other related debts over time, we don’t have too many qualms with this seemingly total liability-filled balance sheet, as this tends to be par for the course when it comes to real estate-centric companies, and we do also take some mild comfort in the fact that the company’s balance sheet is still technically total asset-heavy, at least for the time being.
As it relates to the condition of the company’s income statement, Brookdale’s total annual revenues (specifically referencing since 2018) have been, how do we put this politely, ugly.
No, really, and we know this to be the case because it is an incredibly rare instance in which we find a company (young or established) that has steadily declining year-over-year (YOY) revenues, as this the exact case with Brookdale, with its total annual revenues in 2018 standing at just north of $4.5 billion, tumbling all the way down to its latest reported revenue figure of $2.8 billion, gradually cutting revenues nearly in half, indicating that something or some things aren’t working within the business itself, or perhaps more and more members of the older generation and their families aren’t opting to live in the company’s communities and confines, and it might even be possible that the company sold off some of its properties to other managers or developers, which can be a good thing if it happens to be the case and the company received a full and fair price for the sale of said properties, however, barring all sorts of scenarios, declining revenues are a horrible, awful sign, especially for such a large, established senior property manager and operator such as this one.
Onto the condition of the company’s cash flow statement, Brookdale has also been bleeding on a net income basis and with respect to its same-year total cash from operations figures, watching its total cash from operations fall like an absolute rock.
Specifically, the company’s net income (since 2018) has been as low as -$528 million (2018) and as high as $82 million (2020), with its total cash from operations staying at around $200 million each year between and during 2018 and 2020, subsequently, falling out of the sky to its most recently displayed figure (on TD Ameritrade’s platform) of only $3 million.
Again, something just clearly is not right.
Regarding the company’s consistently negative net income, it seems as though Brookdale’s expenses are really, really high and in need of some controlling and cutting, and the company’s total cash from operations completely crashing to being ever so slightly positive can likely be attributed to a combination of revenues dropping during the same years and/or expenses rising.
Given these initial figures, it seems as though Brookdale is drastically inefficient and with that, probably not even profitable at the moment.
Brookdale’s stock fundamentals
Speaking of profitability, according to the figures displayed on TD Ameritrade’s platform, it just keeps on getting worse for Brookdale, as the company’s trailing twelve month (TTM) net profit margin sits at a disappointingly low -4.17% to the industry’s respective average of -1.67%, which, while the industry’s average is technically better, is still far from giving us much confidence in that even if Brookdale does shape up a bit and boost its margins and reduce its costs, the industry’s average is still in the red, inherently limiting its upside to a certain degree.
Now, this isn’t to say that Brookdale isn’t allowed to eventually trump the industry’s average TTM net profit margin, as that makes no sense, however, we are just merely pointing out that the industry’s more attractive TTM net profit margin is still negative, simply not boding well for our overall confidence, at least, in Brookdale Senior Living on this front.
At this rate, it is far from shocking that the company’s listed TTM returns on assets and investments (also found on TD Ameritrade’s platform) are once again negative, with, for example, the company’s TTM return on investment standing below at -2.38% with respect to the industry’s average of 3.99%, however, while we won’t give a full-on pass in this arena, we will point out that Brookdale is the largest retirement community operator in the United States and that being the case, it isn’t all that easy for such a scaled, large operator to generate outsized returns on investment given all of the investments it has made and continues making.
This might take some time, but what we will certainly reiterate is that this company seems very inefficient, as we would’ve confidently assumed that the business they operate in would’ve been a much better, cash producing one than it actually is.
Should you buy Brookdale stock?
Sure, we admittedly already had a sort of negative tilt going into this article given our stance(s) on retirement homes and “communities,” however, we can confidently say that we wouldn’t let that get in the way of the objective numbers behind this business.
Nevertheless, I guess we can say that we also do not like this company because of its core financials and other relevant figures, as these are frankly the worst (no, not some of the worst, but the absolute worst) financials we have seen in any stock we have analyzed so far.
The company’s balance sheet is probably the biggest highlight of its overall financial picture, and it isn’t even that great, although it is still technically total asset-heavy, even if this is only slightly the case (but again, they really are a real estate developer and operator so it just makes sense), and the ugly develops when we found that the company’s recent total annual revenues have been nearly cut in half, its net income has been resoundingly negative during the same years and its total cash from operations have been sporadic and generally trending towards the downside, its TTM net profit margin is in the toilet and its core TTM return metrics are also negative as well.
As previously stated, the retirement home/community business very well just might not be as lucrative as we had initially presumed, however, even if that were the case, we would expect a major national operator such as this one to show through its numbers that it is the leader of the industry, and all we really gleaned from all of this is that we want absolutely nothing to do with Brookdale now and probably later.
It wouldn’t be right if we gave this company’s stock (NYSE: BKD) anything else other than a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.